Intermediate Outcome: Fiscal Position Returned to a Sustainable Footing
Reducing the fiscal deficit and reducing government net debt back to prudent levels will contribute to macroeconomic stability and increase fiscal sustainability. Reducing the fiscal deficit as the economy expands and spare capacity is used up will lean against upward pressure on interest rates and the exchange rate, thereby supporting a more growth friendly macroeconomic policy mix. It also helps offset some of the risk associated with New Zealand's large net external liability position. Returning to surplus on a sustained basis will restore the fiscal buffer provided by low debt, better positioning the economy to cope with future adverse economic shocks. Alongside this, maintaining a broad-base, low-rate tax system minimises economic distortions.
The Treasury, through our advice on fiscal policy and budget and balance sheet management, has worked to assist the Government to reduce future deficits with the aim of bringing the operating balance back to surplus by 2014/15. This included helping deliver a second consecutive near zero increase in operating spending in Budget 2012. IMF's 2012 Article IV report endorsed the current direction of fiscal policy and international rating agencies continue to note the relative strength of the fiscal position. They also highlight the high quality of New Zealand fiscal institutions, transparency of fiscal reporting and management of the Crown's finances.
The Treasury is required to produce a Long-term Fiscal Statement in 2012/13. The Treasury is taking an open approach to the development of the third of these statements by testing its assumptions and analysis with an independent panel of economists, academics and commentators and seeking alternative views from key experts through a conference in late 2012. This has helped create an environment for open debate and commentary about the policy options available to achieve long-term fiscal sustainability.
In addition, the Treasury continued to manage and administer financial operations on behalf of the Crown (for more information on these outputs, see pages 42 to 44) and continued to manage Crown debt and related financial assets (see pages 43 and 48 to 50). NZDMO issued $13.5 billion worth of government bonds, with the cost of new borrowing being 3.34%, compared with a benchmark of 6%.
